Your best lead generation tool is likely the people who already buy your products or services—your customers. You just have to motivate them to spread the word.

People are four times more likely to buy from a company that a friend recommended. And those referred customers are 18% more likely to stay with you than other customers, generating 16% higher profits.

“The number one way many businesses generate new clients is through word-of-mouth referrals,” says Matt Ward, CEO of Breakthrough Champion, a company that consults businesses on word-of-mouth marketing. “Companies that depend on word of mouth need to have a solid customer referral plan in place.”

So how do you create an effective customer referral program? Here are some tips:


Identify your goals and metrics.

As with any business initiative, you should have an upfront understanding of what you’re trying to accomplish. How many new customers are you trying to attract? Which of your current customers are most likely to provide referrals? Consider setting firm goals that you can then measure the program’s effectiveness against.


Choose the right rewards.

Think about your best customers and what will motivate them to actively refer their friends. Coupons? Freebies? Cold, hard cash? Then make sure whatever reward you offer also fits your brand. File hosting company Dropbox, for example, has sustained a highly successful referral program by offering extra cloud storage for referrals. Remember to reward both sides of the transaction by providing incentives for both the referrer and the new customer. A hair salon, for example, might give a free haircut to customers who make referrals while offering the new customers 20% off their first service. An insurance broker might give out gift cards to people who refer new clients.


Keep it simple.

The easier you make it to earn and claim the rewards, the more likely your customers are to make referrals. Ecommerce companies, for example, can use a service like ReferralCandy with a turnkey system for tracking referrals and issuing rewards. Brick-and-mortar businesses might hand out coupons to customers who make referrals and keep track of those rewards using a customer relationship management (CRM) tool.


Promote your program.

A customer referral program will work only if it’s widely promoted, and to the right customers. Let your customers know about it on your social media accounts and in any email newsletter you send out. Also consider posting a sign about it at your business and putting a page on your website about it. A company that sells to other businesses might promote the referral program on its invoices or create special referral cards with business contact information that it can hand out to customers.


Give extra rewards to your best advocates.

Consider giving your best customer evangelists even better rewards. When Jenny Nguyen, co-founder of Y/OUR personalized skin care products, analyzed her company’s referral data, she saw that most referrals came from a small group of the company’s highest-value customers. So while many brands give the same referral bonus to all customers, Y/OUR decided to offer double rewards to its best customers. “This not only drove more referral sales, it also increased brand loyalty among our customers,” Nguyen says.


Focus on customer service above all.

No matter how generous your referral program is, exceptional customer service is what motivates customers to refer your business to their friends, Ward adds. You should always look for ways to exceed customer expectation. If you tell a customer that the brake job is going to take all day, try to have it done by noon. If there’s a problem with a product, send out a replacement immediately, along with prepaid packaging for the return.


“The best way to drive referrals to your business is caring about people,” he says.

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